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Tuesday, January 10, 2006

Gunnar Myrdal and the Effects of Population Decline

In public discussion political attitudes are naturally not given vent to as the mere articulation of wishes but are presented as rational conclusions from reasons of public welfare.

In this lecture I am thus shifting ground. From now on I shall not study the psychological problem of the manner in which people's attitudes are actually formed. I am concerned, instead, with the theoretical problem of rational aims with respect to population development, i.e., aims which can be inferred by reasoning -- after a scientific analysis of the probable effects of a population decline in comparison with a stationary population trend -- to be rational according to the valuations and interests current in a democratic country.

By way of introduction I will emphasize the two connections which link together the different approaches of this and the foregoing chapter. On the one hand, it is not least through a rational analysis of alternative goals that science can lead politics to greater reasoned clarity as to both objectives and means. The higher the standard of public education in a country -- and the more the identification of the common citizen with his nation calls forth a widely dispersed sense of collective responsibility -- the more decisive does scientifically rational guidance become for the political attitudes of the citizens and for the actual political course of events. On the other hand, the personal attitudes of the individual student, and through them the entire mental environment in which he has grown up and where he has his social moorings, nolens volens always color his scientific analysis to a certain degree. This last influence, which proceeds from the attitudes to the argument, is, of course, irrational in principle. One is the better protected against this source of error if one is aware of it. For this reason the sociological discussion of the last chapter is not merely important in itself but is also necessary as a preparatory cleaning of the investigator's own workshop.

The main problem in an assessment of the effects of the population development naturally concerns the economic effects.

The effect on an individual family of its abstaining from having a child, or another child, is typically to allow a somewhat higher level of living for the rest of the family. The cumulation of such decisions in the national group of many families (i.e., the fall in fertility) has, however, through its effects on the wider economic process of production, distribution, and consumption in a society, certain indirect and general effects upon the level of living in all families; these indirect effects not being simply the sum total of the individual effects. The individual direct effect is immediate; the general social effect is mostly deferred two or three decades or even more. The individual effect is a motive for individual family attitudes; the social effect is a motive for political attitudes in the population problem facing a nation, held by the individual as a citizen. The first effect is a simple matter of private budget economy. The second effect must be examined through an analysis of the entire economic system.

Such an analysis meets very great difficul ties. Causal relations within future, alternatively possible population trends are naturally not, and can never be, open to direct empirical observation. By necessity the method of approach must be theoretical: first, to resolve by logical methods into its simpler elements the complex problem raised; second, to pass valid judgments on the elementary problems; and, third, to coördinate these judgments into a composite judgment valid for the total processes of social change constituting the alternatives and the lines of comparison raised in the main problem.

The theoretical analysis and synthesis involved in first resolving the problem into its elements and then composing it again does not meet insurmountable difficulties; this procedure is open to logical criticism and can be improved. The basic difficulty is, of course, to pass valid judgments on the elementary problems into which the main problem is resolved. These judgments should rightly be be founded on empirical analysis of past processes, which have been in a similar way resolved into the same elements. As historical data does not allow a laboratory technique, his empirical analysis, which should establish economics as a science, is for the most part undone. As yet, elementary causal relations are mostly not unveiled by valid empirical research; at best, large regions are covered by a very partial common-sense knowledge reached by heterogeneous and uncertain historical induction.

In this situation it is very tempting to conclude that we should never reach for knowledge concerning the future. For practical reasons, however, this conclusion is excluded. The inference would be that practical action in the political field by necessity is and must be absolutely unreasoned and irrational.

In the present problem this negative attitude would mean that, since a rational population policy would require a knowledge of the effects of population trends, no such policy with any degree of rationality is feasible. Scientists have, on the contrary, always proceeded upon the assumption that the utilization of their very inconclusive knowledge of social reality and the application of clear logic must result in an understanding more rational than the absolutely unguided whimsicalities of mind. No true scholar, on the other hand, pretends to anything more than a very uncertain orientation with weak lamps in the darkness of the future.

When approaching the problem of the economic effects of alternative population trends these reservations in two directions should be constantly borne in mind. A number of more specific reservations are also evident at the start. The analysis can thus hardly be carried through in common form for all countries but must be differentiated according to conditions in each separate country. The results for any particular country depend, however, among other things, upon one's conception of future conditions of foreign trade and upon the degree and efficiency of public control of economic life.

In this connection I must limit myself to some very general lines of thought. A more intensive discussion of the problem is contained in an investigation appended to the principal report of the Swedish Population Commission on the sexual question; here I can only present a very condensed synopsis of that investigation. The tentative conclusion will be that for western civilization it is probable that a higher average level of living may be attained with a stationary, rather than with a declining, population; a progressive population is, as I have tried to show, entirely out of the question and in the western world has, therefore, only a historical and academic interest.

In anticipation of this discussion, there is one thought I should like to emphasize. The effects of population on economics are not determined chiefly by the total number of the population nor by its age distribution; they are for the most part engineered by the changes in these factors. It is the rate of change in a population during a dynamic process in time and not the quantities at any particular point of time which are of importance in the problem.

It is on this point that theorizing has gone wrong during the last two generations, in which it has been dominated by the thought-ways most clearly expressed in the optimum population theory. As empirical statistical analysis naturally is conditioned by the theoretical questions asked -- even when these questions, according to the post-war fashion of being factual and nontheoretical, are only implicit and not clearly expressed -- the same criticism is valid even against attempts to study the economic effects statistically.

In the main, the same kind of reorganization of research is needed in this field as that which is being accomplished by making dynamic the research on capital formation, investment, and saving. And it is not at all astonishing that the dynamics of population should have been frequently touched upon in an entirely new way precisely in the discussion during recent years of investment and saving and of economic expansion and stagnation.

The older discussion of the economic aspects of the population problem from Malthus' time was quite simply a discussion of "overpopulation." Malthus and the generation of economists that followed after him started out from the thesis that because of the inevitable tension between procreation, which followed a geometric progression, and the means of subsistence, which at its best followed an arithmetic progression, there was maintained in the long run -- aside from short-term intermedi ary periods when the means of subsistence jumped ahead because of improved technique or an exceptionally high mortality rate -- a population so large that it could barely live and reproduce itself. That the standard of living at every point of time and under practically all circumstances should take a higher position with a smaller population was, for Malthusianism, a fundamental axiom -- an axiom which was even the foundation for the theory of rent and the gradually developed general law of diminishing returns through which was determined the entire classical theory of distribution.

When afterwards, during the latter part of the nineteenth century, the pessimistic and conservative political conclusions from the theory of population were broken down because rational birth control was accepted as a theoretically possible, and morally approved, method for hindering the press of the population against the means of subsistence, population theory, nevertheless, continually took form according to the supposition that the real problem was and always would be the menace of overpopulation. This position domnated economic discussion until the Great War and even thereafter. Few economists with professional self-respect -- and, as far as I know, none in the Anglo-Saxon and Scandinavian neoclassical line -- had any other thought than that, even if an active pressure against the means of existence was not present in the old meaning, nevertheless the lower the population, the higher the average level of living would ordinarily be. The classical inheritance of thought completely dominated economic thinking in this respect. The rapid expansion of the population throughout the whole century strengthened the tendency to fear overpopulation as the outcome of the population trend.

Neoclassical economic theory was particularly fettered by its static approach to its problems. The static principle was, in fact, much more fundamentally embodied in the theoretical structure of neoclassical marginalists than in earlier classical theory. It has important associations with the liberalist noninterference bias of the whole school. It is not difficult to ascertain that this school of economists on the whole even showed a tendency to minimize actual changes as far as the future was concerned. Thus the idea was always maintained that the tempo of technical progress in the future could be expected to become slower.

A very amusing set of quotations could be collected from economic literature showing how, decade after decade, and particularly, of course, in depressions, it was predicted that no further technical progress of large economic importance would be accomplished. The authors always had the great inventions behind them and only "minor improvements" ahead. This list could, as is well known, be continued by quotations from very representative authors until the present time. The psychology behind these systematically iterated mistakes is very simple indeed. It takes quite a capacity of imagination to foresee the branching out of new inventions from recent discoveries and the implications of their practical application, but, as one looks back, this branching out, which makes a discovery epochal, is a matter of common historical knowledge.

This idea of the decreasing tempo of technical development from the present point on ward was a comfort greatly needed by static economic theory. It also agreed well with the quite exaggerated respect for the extraordinary efficiency of private capitalistic enterprise which was nursed by the liberalist tradition of economics. It was, particularly in the generations preceding the war, not considered exactly tactful to imagine that very extensive improvement of production was still possible. In America, however, where until the recent long stagnation industrial development followed a still hotter pace, it was impossible to maintain this static pessimistic view of future technical development. Instead, the hypothesis was there worked out that technical development was proportional to the amount of technical knowledge accumulated at any point of time and, consequently, that it would rise progressively according to the continuous interest formula. Prima facie, this hypothesis seems more realistic. The present American economic stagnation and the economic difficulties in several other countries can, I am inclined to believe, be fully explained without resorting to a deceleration of technical progress.

Per se, technical progress represents in creased power over the forces of nature -increased "natural resources," as one could rightly say, looking on the matter from the economic point of view. Economic theory stressed, instead, scarcity of natural resources. Now this point of view is not precisely the one which is forced upon us by closer study of economic facts today. The western world does not seem to suffer from any lack of natural resources. The fault is rather with the demand. Or, to put it more correctly and completely, what we lack is a rational and planned social organization of production and distribution. We have plenty of the means of production, as well as technical knowledge of how these should be used in order to maintain and raise our level of living, but we do not master the organization of production and distribution. Society is still our least efficient machine.

It actually took us an unnecessarily long time before we discovered that the main trouble was not any lack of natural resources, so fixedly have we held to the static thoughtways of the liberal economists -- the apologetics of the world as it is and the opponents of public interference. Even in the post-war period this make-believe scarcity of natural resources has hypnotized the minds of politicians in the very face of continually falling prices of raw materials, a mistake which, by the way, is probably not guiltless in the most disturbing political development. And the crises that have occurred of superabundance and market disorganization -- "plenty of wheat and no bread" -- have been repeatedly asserted to be paradoxical, which they most certainly are from the static viewpoint of scarcity economics.

As long as the main cause -- and justification -- for common poverty could be assumed to be scarcity, scarcity of natural resources and capital, it was natural to believe that a decline of population would decrease this scarcity and raise standards of living. When, as now, interest is focused instead upon the institutional machinery of production and consumption, this conclusion is not so obvious. A shrinkage of population would not in itself make this machinery run more smoothly. As we shall find, there are reasons for an opposite opinion.

The existence of unemployment is one of the extremely disturbing effects of the lack of social organization in production and distribution. The inference that the population is "too large," at least by the amount of the unemployed is, however, invalid. If we could "wish away" from the country and the world all the present unemployed, this change would bring about secondary changes in the various supply and demand curves, with the result that in the lapse of a short time a new unemployment would develop, although perhaps not so large as before the change. The important thing is, however, that the population factor which is assumed to be changeable is not the death rate among unemployed, but fertility. A lowered birth rate would not affect the present number of unemployed at all; its possible effect is deferred fifteen or twenty years. And there is no a priori reason why, after the course of such a period of time, a lower rate of unemployment should be expected as a result of lowered fertility, if this particular change is not assumed to improve the social organization of the economic process.

Let us go back to the scarcity theory of the liberal school of economists. The static ap proach was early crystallized in the theory of an optimum population. This theory is in reality very old. From the standpoint of the history of doctrine there is a certain interesting shade of difference between the classical and the neoclassical variation of this theory which I shall pass over. In its neoclassical form it has been most clearly set forth by Wicksell. With much the same substance, it has been appropriated by most economists and statisticians who have dealt with the population question.

The theory of an optimum population does not belong to the more complicated economic theories. It is, quite simply, as follows: that the highest possible average level of living (greatest national income per capita) is attained with a certain size of population, a size which was usually assumed to be considerably smaller than that existing. With any change from this optimum position, whether the movement be upward or downward, there is brought about a lower average level of living. This curve, which reaches its maximum in the optimum population and which denotes the dependence of the average level of living on the size of the population, is, according to the theory, dominated by two counteracting forces. The first force is quite simply the law of diminishing returns: since, ceteris paribus, with a smaller population the total amount of land and durable real capital is greater per inhabitant, the marginal productivity of labor and even the average amount of production per worker becomes greater the smaller the population, and vice versa. The opposite force is the law of external economics: there are certain advantages dependent on division of labor with a larger population by reason of which the law of diminishing returns cannot prevail down to the smallest population size imaginable. At the position of optimum population the two forces evenly counterbalance one another, resulting in a maximal welfare of the population. Above the optimum position the law of diminishing returns has most effect; under that level the law of external economics dominates.

The theory of optimum population proceeds from two common-sense observations, which have the character of reductiones in absurdo of the contrary opinion that population size is entirely without influence on the average level of living. These observations are that, assuming a low international division of labor, a very great density of population will necessitate an existence on the level of misery, as will, likewise, a very low density of population. If people are very numerous in relation to the means of existence -- e.g., if humanity were enclosed in one of the smaller Swiss cantons -they will certainly starve to death. If, on the other hand, they are so few and scattered over so wide an area that coöperation on a social scale is precluded, they have, of course, to give up everything that requires a more highly integrated social organization. But in order to deal with the pressure of population in China or India -- and, for that matter, in certain backward and culturally isolated regions in the United States or Poland -- or with the indigence of life in a desert land, one does not really need such a factitiously constructed general theory. What the optimum population theorists actually had in mind was, instead, the ordinary western countries in process of rapid industrialization. They therefore interpolated a curve between the two self-evident extremes of utter poverty and formulated a social law on this curve which then was interpreted by the two laws of return already referred to.

I cannot stop to give a thorough criticism of the optimum population theory. For the present purpose it may be enough to hint at some of the points where caution is to be prescribed.

As to the curve itself obtained by this hazardous interpolation -- the average level of living as a function of population density -- it should be noted that there is actually nothing in its construction which indicates that it could not, for large spaces, have a very level course. It is, likewise, perfectly possible that this curve might have several maximum positions at very different sizes of population and that the difference in height of the average level of living between the maximum positions might be unimportant, particularly in view of the great indeterminateness in theoretical content which the quantity "level of living" shares with all averages and indices. In both cases the conclusion would be that average level of living should be fairly independent of population size for certain values of this last quantity.

It is further clear, and also recognized, that not only the average level of living at any population size but, more primarily, the forms of the productivity functions which are supposed to determine the curve must be thought of as depending upon the available technique. As the amount of applicable technical knowledge is changing and increasing all the time, the assumed curve, and the optimum position, cannot be projected into the future simply on static assumptions. If, then, the curve is supposed to be changing under the influence of future technical change, this makes the theory more valid in abstracto in this particular respect, but at the same time increases the difficulties in practical application tremendously.

I shall not go on with this theoretical criticism, even though the points raised are far from inclusive, but conclude with the remark that it has, of course, never been possible anywhere to give for any country a quantitatively expressed answer to the practical question of the actual position of this population optimum. The theory is a speculative figment of the mind without much connection with this world; it does not give any guiding rule for the practical and political judgment of reality. Actually, the theory has mostly been utilized to furnish a broad and vague foundation for the opinion that the level of living should be higher with a smaller population. The argument is simply that, after a certain point of very low population density, the law of diminishing returns must dominate.

Curiously enough, in this neoclassical speculation on population the factor of age distribution was for a long time not studied, and it was never studied intensively as to its economic implications. It is remarkable, because this factor could to a large extent be taken care of in a stationary model of theory. When a certain trend of the population development is maintained for such a long period that a stable age distribution has been reached, the difference between a progressive, a stationary, and a regressive population -- apart from a different development of population numbers -- is that in the first more than in the second, and in the second more than in the third, the number of children is relatively large and the number of old people relatively small. A corresponding difference rules even within each major age group taken by itself. If we thus compare a regressive population with a stationary one, we find that in the first young children are relatively fewer than older ones and that the center of gravity is also higher in middle age as well as in old age.

Now people in different ages are productive in different degrees, and -- within a given standard of living -- their consumptive demands, their cost of living, also differ. Here intensive empirical studies ought to set in, and they are now being made in Sweden, to ascertain the average productivity and the cost of living in different age groups. These calculations give somewhat different results in different social classes. The occupational and cultural changes also alter the quantities from time to time very considerably.

I cannot in this short synopsis enter upon the details of how such realistic studies of agedifferential productivity and cost of living are to be planned and carried out. One very broad generalization must suffice. If, by combining productivity and cost of living into a net productivity, we try to get a general index for the contribution or noncontribution of various age groups, we get, of course, the general picture that normally a person during two periods of his life, the beginning and the end, consumes without producing, while during a period between he produces more than he actually consumes. The influence of its age structure on the average level of living of a nation will then be determined by the relation between the "overproducing" and the "overconsuming" age groups.

Now it happens, as everybody familiar with demographic problems knows, that rather independently of the course of population development, if the trend is stable, the sum of children and old people is in a pretty fixed relation to the whole population. In a stationary population there are more children and youngsters but fewer old people than in a regressive population. From the point of view of society as a whole it is of less importance that, under the ruling norms and valuations embodied in the prevalent type of family organization, the children are usually provided for by their parents, while the old people are supposed to be living on their own savings. In the national economy the maintenance of children and saving for one's old days should come to very much the same thing.

There is, however, one important difference. A declining population will be relatively somewhat richer than a stationary one, and a stationary one richer than a progressive population, for there will be less need of investment for keeping up or enlarging the productive and consumptive capital apparatus. If we could assume a perfectly balanced capital market -in this assumption is hidden the principal shortcoming of the stationary analysis -- the corresponding part of excess monetary saving in a declining population could be utilized to raise the level of living somewhat. This is due, however, not to the difference in age structure, which, as has been pointed out, is of minor importance, but to the general shrinkage of population in its relation to the amount of capital equipment. This is the basic consideration in the theory of optimum population which we will have to come back to.

Age distribution as such should, in any case, have very little influence on the standard of living of a population. It must be said again, though, that this is a very broad generalization. In a more intensive study we should also have to investigate the effects of declining mortality on the stable age distribution, and we should have to split net productivity into its production and consumption sides and the major age groups into smaller age groups. We should further have to consider the big differences in different social classes and occupations as to the length of the periods in which young and old people are allowed to consume without producing and as to their relative consumption, and we should also have to observe the effects of occupational and cultural change. Our rather intensive studies after these lines in Sweden suggest, however, that the broad generalization will on the whole keep valid in spite of the great occupational changes going on as a result of industrialization, and in spite of the rising standard of living and of social and educational reforms. The trend of population development should not in itself, via this factor, have much influence on the economic welfare of a people.

One important reservation must, however, be added at once. Such a statement holds true only when a stable age distribution is reached. When, as now in the whole western world, the population trend changes in a short period from a progressive to a regressive type, we have an interregnum of abnormal age distribution, where the children are few in number, corresponding to a regressive population trend, but the old people also are relatively few, corresponding to the earlier progressive trend. For a few decades -- and assuming that unemployment is not increased, an assumption which is part of the general assumption of static equilibrium underlying the whole theory -- this must form another factor tending to raise the standard of living. This factor is transitory; it disappears as soon as the age distribution approaches its stabler form. Moreover, if the population at any time should return to full reproduction again and stop the shrinkage, a corresponding transitory press downward on the level of living would result.

At this point a stationary analysis has to stop. The fundamental weakness of the theory is, however, that it is static. It does not allow for the dynamic factors. It relates the level of iving merely to size of population and eventually, if elaborated in this direction, to age structure. Like the whole type of economic speculation of which it is an outgrowth, it merely compares two different positions, without allowing for the effects of the change between them. An analysis that proceeds must attach importance to the fact that there is actually a development in time between the two positions compared in the stationary analysis, and must study the effects of the change of quantities from one position to another.

The major dynamic effects of a change from a progressive to a regressive population trend -- or generally of a lowering of the population trend -- must be related to the decreased rate of increase of production (and consumption). If technical progress per se can be assumed to be independent of the population trend, this effect is evident. It has sometimes been held that technical progress is more rapid when the population trend is higher; in any case the opposite relation has never been vindicated.

If the change in population trend should not result in any disturbance of economic stability, the decline in increase of production should not occur before the time when the lowered fertility has had its result in the numbers of persons of working age (fifteen to twenty years later). In the meantime the effect would only be certain changes in the direction of consumptive demands and, consequently, of production. These changes are very much of the same type as other changes in demand functions constantly going on in a dynamic society. They might well be important enough in their disturbing effects on production, however, to counterbalance the increase in per capita real income (consumption and saving) which we have shown should be the transitory result of an unstable age structure. As the age structure becomes stable these extra disturbances of demand function will disappear. As then a continuous decrease in the working ages is being effected, a general (relative) shrinkage of production and consumption will take place.

According to the stationary analysis this shrinkage should be followed by a rising level of living, in so far as the law of diminishing returns dominates. The marginal productivity of the human factors of production, and also their average earnings, should increase. One general assumption underlying this conclusion is the atomistic supposition that the total real capital in a society is fluid and fungible as the money captial is. Now, real capital -- including all natural resources -- is instead embodied in the production apparatus. This structure is fixed. Every change means a value-destruction of existing real capital. These losses might be large enough to counterbalance the assumed increase of capital goods per capita. They might even be larger -- indeed, much larger.

The point can be illustrated by the capital invested in apartment houses and homes; in Sweden nearly half of the normal investment is in housing. An adjustment of this stock of consumption capital goods to a smaller number of families is not possible except under heavy capital losses. Now, it is true that the same occurs as a result of the normal rise of the housing standard under any population trend (e.g., under the earlier progressive trend). But the important reservation should be added that -- assuming the same average rise in the housing standard -- the higher the population trend, the smaller the proportion of housing capital which has to be scrapped or rebuilt.

It can further be maintained quite generally that every shift in the demand curves for capital goods, due to whatever primary cause of change, which in a progressive system of production and consumption will only cause a corresponding shift of new investments followed by a rapid restoration of the supplydemand balance, in a stationary and still more in a shrinking economic system will result in a prolonged disbalance. (The length of time is determined by the relative lowness of the population trend and by the durability of the capital goods in question.) For the owners of capital the disbalance means losses. The anticipation of the increased possibility of such losses increases investment risks all around. Let me illustrate the point by returning again to housing.

In a rapidly growing city a relative overproduction of a certain type of housing accommodations -- say apartments of a certain size -- is not a very serious affair. The construction of such buildings has only to stop for a short period, allowing the population to grow to fit the too-large capital structure, and such a reaction on the part of the investors is a natural outcome of the forces in the market. In a stationary or, still more, in a regressive city the mistake in investment, and consequently the loss, is irremediable; there are, and will be, too many of those buildings.

Very much the same thing is true not only for housing capital but for the whole structure of the apparatus of capital production. The risk of wasteful disproportions and maladjustment in capital investment, and of subsequent losses, increases when the population is not constantly growing to fit even the wasteful mistakes of individual entrepreneurs and the unforeseen changes in demand curves. The risks of entrepreneurs will, therefore, increase, and their willingness to invest decrease. It must be remembered that one of the basic conditions of the whole liberalist order of capitalistic society, where individual entrepreneurs act independently in a free and unregulated market, and, more particularly, one of the basic conditions of the possibility of assuming that their uncoördinated actions do not lead to too much waste is a rapidly growing society. The retardation of market increase has the effect of increasing risks in all capitalistic enterprise and, consequently, of hampering private investment.

Private investment is depressed by a lowered population trend in another way, too (i.e., even apart from the increased risks for Fehlinvestierungen). In ordinary western society, where the standard of living is continually rising, there will always be a tendency to have too much real capital which, directly or indirectly, serves the needs of a formerly more common lower level of living (e.g., small-sized apartments). When the national household is increasing rapidly, this fact does not disturb investment very much. Investment has only to be turned more to the type of real capital that directly or indirectly serves the needs of a higher standard, and this is also the effect of the forces in the market. When, however, the population is becoming stationary, and even more when it is beginning to shrink, the whole situation changes. To stick to the example above, smaller apartments will then be relatively very cheap and people will cling to that standard of housing, even if they could afford to live in larger and better apartments. The existing stock of apartments of a lower standard will then block the tendency to raise the housing standard. It should be mentioned that this example is not an imaginary one but that it gives the gist of experiences which have been studied in some detail in Sweden. In different degrees the same holds true in the whole structure of the capital apparatus of society. The result is, on the side both of consumption demand and of production demand, a dryingup of the very sources of the inducements to invest. It may be answered that the individual savings set free by the lower standard in certain items of the consumption budget can be, and ordinarily will be, utilized to raise standards and demands in other directions. Since, however, the subnormal demand is directed toward consumption that requires large investments -- it is the very fact that these investments are durable and represent a proportionally very large part of certain consumption costs which under the circumstances keeps these particular costs and the corresponding consumption standard down -- the compensatory demands in other directions will not create an equal demand, direct and indirect, for investment. The final outcome must, therefore, be a decreased stimulus to investment.

To be more specific I have talked here in terms of capital goods of higher and lower standards. It should be pointed out, however, that the same holds true for every shift in the demand curves. If productive or consumptive demand for a thing is shrinking, in so far as the demand is served by a product in which durable capital goods are employed to such an extent that remuneration for them is a relatively large portion of total costs, a low population trend will incline to keep these costs subnormal and retain consumption in spite of the initial change in the demand. Investment in the particular type of capital goods affected by the decreased demand will naturally cease, and as the compensating increases of demand in other directions made possible by the consumers' savings cannot be assumed to be directed to the same extent to capital goods, a tendency toward decreased inducement to invest capital must result.

Thus for two specific reasons -- the increased risks in all sorts of investments and the decreased demand for capital goods serving

a higher standard of living or new demands generally -- we may expect a lowered population trend to have a hampering influence on the total amount of private investment in a society. On the other hand, we had previously reached the conclusion that a declining population in comparison with a stationary, and a stationary in comparison with a progressive, have on the whole a smaller need for investment to maintain and increase the productive and consumptive apparatus and, because of that, a relatively greater amount of available savings. Our two specific factors actually hampering investment will thus work in an environment where there is already an increased permanent risk of disbalance between saving and investment.

Now, modern theory of the cyclical and secular changes in the condition of business and production has come to fix more and more attention on investment as a driving force in economic progress. Savings which are not invested only raise the total of losses in society. If a lowered population trend hampers investments, it curtails progress and increases unemployment and poverty. These effects can easily assume much larger proportions in an industrial society than the results of the static forces tending to make a smaller population richer in capital resources per capita.

The possibility is, of course, open that government can decrease investment risks -initially increased by the lowered population trend -- by central planning and investment control, the state thus assuming the coördination of the actions of individual entrepreneurs which was less essential when population was continually growing into investment mistakes and changes of demand. The state can also increase inducements to investment in the higher standard capital goods by subsidizing a higher standard of living in those directions or by directly subsidizing such investment. The state can also even compensate for the falling off of investment by its own investments, which then, from the point of view of the balance between saving and investment, may be in other fields. And, certainly, the trend in population will turn out to be one of the strongest underlying forces promoting government control and participation in business and production. But per se the lowered trend in population, because of these dynamic factors, will give rise to a tendency toward a more depressed state of production, hampered enterprise and employment, and, consequently, consumption standards.

It is, of course, difficult to ascertain the due weight of these dynamic factors; they will, moreover, have very different weight in different countries, and, as has already been said, their effects can be counteracted by government interference.

The aging of the population must also be considered in this connection. I will restrict myself to quoting the conclusion which the Swedish Population Commission reached on this point:

A declining population means a relatively greater number of old people and a higher average age even within the generation of middle-aged persons. Because of certain average psychical differences between generations, which have not been well studied, such a difference in age distribution must have important effects upon the whole life of the people, not only economically but even politically and culturally.

In a judgment of this question it is certainly incorrect to underestimate the importance of the calm presence of mind, the patient care, and the greater experience of life which comes with age. But the age distribution already present with a stationary population should give assurance of a sufficient predominance by the older classes which possess these valuable qualities in high degree. The age distribution which comes about with a declining population would, on the other hand, imply serious danger that the nation will be wanting in the other qualities likewise valuable, which belong above all to youth: willingness to sacrifice, courage, power of initiative and creative imagination.

For my part I should like to add parenthetically the reflection that, when I seek to understand the unprecedentedly tragic post-war history, I cannot avoid the thought that the cause in part lies in the lack of young people in the great European nations which took part in the war. It was the young generation, and the best of it, that bled to death on the battlefields, while remaining to organize peace again were the older generation, the white-feathered stay-at-homes, and a shattered, war-neurasthenic remainder of the youthful generation.

This question of the relative value of the different age groups in a society I will, however, leave aside. But in this connection I want to emphasize another point. The shifting of the age distribution within the working ages, which will result from the lowering of the population trend, will come to have a restrictive effect upon young people's opportunities for advancement in all the occupational groups where there is a career to carry out. It may, it is true, be easier for young people to "get into" a job, but it will be more difficult to "get ahead." With a declining population, as opposed to a stationary one, and along with it an average decrease of personnel in all spheres of activity, there will be a larger percentage of older persons everywhere who can hold appointments by right of seniority. It will then take a longer time for a young person to arrive at a responsible and leading position, and the probability that he ever will get there will vanish. There thus lies in the actual age structure of a declining population a tendency to restrict the opportunities of youth.

In all occupations in which careers are possible, the working personnel is organized hierarchically. Every part of the working life has the form of a pyramid with a broad base which rapidly tapers toward the top. Society consists from this point of view, quite simply, of a conglomeration of such hierarchical pyramids: if one adds them all together he gets an aggregate hierarchical pyramid which is the present social order. This aggregated hierarchical pyramid of society, where the abscissa is the number of individuals and the ordinate their occupational stratum, as also their social and income position, has, as we all know, a sharply tapering form; the tendency in social development for decades has, in fact, been that the number of superior persons steadily decreases in relation to the number of subordinate persons.

The able-bodied adult population must be pressed into this hierarchical pyramid of society. This always frustrates the human material: the larger number are never able to achieve the careers they hope for. Many personal ambitions must be cut short. But it is clear that the more progressive the population trend is, the better will the ordinary pyramid of age structure correlate with the hierarchical pyramid of employment opportunities: thus a larger proportion of the young can get ahead in life. The more regressive the population, the less there is of such a correlation. The greater the difficulties in the way of ambitious youths, the more people even in the higher ages will be held at the bottom of the hierarchical pyramid; and social rises will occur less often and with more difficulty. In a declining population the hopes of the individual must to a greater extent be disappointed, his possibilities for development be cut off. This is another way in which a lowered population trend dampens the whole spirit of society, decreases the tempo of its progress.

We have already pointed out that the expansionist capitalistic system of private enterprise had as one of its prerequisites a progressive population. A declining population will increase investment risks all around and, even apart from that, will lessen the demand for new investment. Since in an aging society monetary savings are kept up, the result will be a continuous tendency toward investment falling short of saving. The government will have to step in, controlling and coördinating individual enterprise and compensating for the shortage in investment opportunities. But it will have a difficult task, if it is not to replace private enterprise over the whole field. In addition to this there are the hampering effects on inter-class mobility of the change in age structure. And it is difficult to avoid another broad generalization here: the mental and spiritual basis of private capitalism was the opportunity for individual advancement, the belief in which acquired an almost religious intensity in the "American dream" which stands as the creation of the country with the most steeply progressive population, the most unhampered private enterprise, and the most fervent individualism. When on account of the changed age structure individual opportunities to rise socially are blocked, people will get discouraged. They will lose their dynamic interest in working life; society will lose the mental attitude that goes with progress. Interest in security will be substituted for an earlier interest in social advancement.

The peculiar brand of Socialism which is apt to develop under the continued influences of these factors must unfortunately be expected to take on an administrative, bureaucratic, senile character; it will be the bureaucratic administration of the liquidation of a people. Much less takes care of itself in a declining economy than in one that is growing; the bureaucratic apparatus must therefore increase. This apparatus becomes less dynamic, less effective, not only because it comes to rest principally in the power of old men, but also because of a heretofore unmentioned reason: the best, the most dynamic intelligences cannot come to feel a very great interest in the administration of a liquidation. Even one who was a Socialist in politics, but who has felt the pulse of progress in his veins, who has loved free initiative and advance, must feel cheerless before these prospects. He hardly expected this to be the outlook for Socialism. He would even be tempted to defend private capitalism if by that means he could revivify dynamic progress.

In discussing the dynamic effects of the changed age structure under a lowered population trend, our point of view has been that of young people looking toward the future. The main burden, however, will fall on the older age groups. When they increase in relative numbers it will not only block advancement for young people; at the same time, and pri marily, it will increase their own difficulties in keeping employment.

Of these two effects, the first will dominate relatively more in the middle-class occupations, with their more fixed rules for advancement in income and security in accordance with age and their greater adherence to the seniority principle. The latter effect will dominate the immense realm of common labor. In both fields the two effects will be simultaneously in operation. Thus, in the middle-class occupations the older generation will be large enough both to hamper the advancement of the young and to make positions uncertain for themselves. In the common labor market the structuralization of the conditions for employment and advancement, partly as a result of the efforts of trade unions, is constantly creating a situation similar to that in the middleclass occupations, regulating the right to employment and advancement in the interest of the workers already in employment, so that newcomers have to serve several years in order to reach the surer and better-paid jobs. In the face of a changing age structure these attempts will, however, meet difficulties.

When the regressive population trend has been working long enough so that the generation of youth which has just arrived at the working age begins to be fewer in number than the generation which stands next highest in age -- and particularly after the development of population has reached the point where the young generation coming into employment is less than that going out of employment because of death or old age -- it should, of course, be easier for these young workers to get into the labor market, even if advancement is more difficult. Opposite this tendency, however, one must place the tendency toward a generally more depressed economic situation as a result of such a population development. It is very uncertain whether the favorable tendencies of such a development will overbalance the unfavorable for the younger generation. The great importance of the actual business situation in general for the placing of the younger workers on the labor market is clearly evident from the especially large cyclical variations in the unemployment of youth. During the last boom in Sweden unemployment of youth was lowered to a minimum, in spite of the fact that the yearly number of youths arriving at the age for employment is still relatively large.

For older workers the situation in the labor market is poorer with a regressive population development both because of their becoming relatively greater in numbers and because of the generally more depressed state of business. For them the two tendencies run together. If, in the future, we should have to reckon with a continued general rise of the demand for quality of work -- because of rationalization, standardization of labor conditions, etc. -the situation in the labor market might become quite difficult for workers at the ages of forty, fifty, and sixty, as their relative numbers increase in the regression of population.

The very fact that the older workers have acquired a specialized training through their earlier work experiences, and because of that are not fungible as the young workers just entering the labor market are, will turn out to be increasingly a cause of insecurity. In this respect the older workers are under a danger similar to that of the capital apparatus when the population trend is lowered. Every slack ing-off of relative demand for a particular kind of worker, which in a growing economy could easily have been adjusted to by the market reaction that young workers would cease to be recruited for that field, will now fall with full force on the workers already there. This last point is the more serious from the point of view of social policy because the problem of the occupational guidance of youth, which in my country as in others has not been satisfactorily solved, is a relatively very easy problem compared with that of giving new training and greater scope of opportunity to older workers who, in the processes of economic adjustment, have been put out of employment. And it must be remembered that everything which it becomes necessary to do in such a situation in order to defend the older worker's right to work and achieve security will have a tendency to decrease the opportunity for "getting in" which the young workers have under a lowered population trend.

Apart from this growing conflict of interests between young and old workers -- and, more particularly, the increased danger to old workers that, like the apparatus of capital, they will be made obsolete by every tendency toward occupational shifts -- there is, in the main, no reason to differentiate a special labor market problem within the larger problem of the economic effects of the population trend which is here dealt with. It is certainly true that political, organizational, and other institutional changes can influence labor conditions away from the direction which they would take if they were determined solely by the general economic development. But such reforms do not depend upon the population development, at least not in a direct and very important manner. This means that if, as is here thought to be likely, a lowered population trend on the whole can be expected to have generally depressive effects on investment and production, it follows that labor will be placed in a poorer position.

As to agriculture, one word should be said. In the western countries a rapid industrialization has been constantly going on. In countries like Sweden and America this change is far from having reached its limits. It is a condition of a rise in standard of living that a por tion of the family income that is absolutely increasing but relatively decreasing shall be set aside for food. Similarly, it is also a condition for this development that a decreasing part of the population shall be engaged in agriculture.

If, now, a lowered trend of population has a generally depressing influence upon industrial production and investment, a barrier might be built against this natural transference of labor from agriculture to industry and the whole process of continued industrialization might be hampered. As the elasticity of demand for agricultural goods is generally low, the resultant poverty in agriculture could be very intense. In agricultural regions during such a process a situation might develop in which there was an actual "overpopulation" in a very real sense, particularly as fertility has a tendency to keep up for a long time in povertystricken rural districts.

That such a situation is not a proof of general overpopulation in a country or in the western world as a whole is the more palpable from our previous discussion, since it might result from the lowered population trend which has contributed to the industrial stagnation, which in its turn has hampered the shift of the population from agriculture to industry.

In concluding this chapter I do not need to emphasize how weakly founded the conclusions are, and must be, for reasons pointed out in the beginning of the discussion. I have merely tried to bring out certain general relations and state hypotheses which should be tested out in more intensive research. Such research cannot be carried out in a general way but must be related to the specific situation of each country and each time.

I believe, however, that I have given a general, though vague, defense, even from the point of view of economic effects, for proceeding in the following analysis of population policy from the general premise that in a country where continued industrialization is not blocked a stationary population is preferable to a declining one (a progressive population being entirely out of reach).

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About

Edward 'the bonobo' is a Catalan economist of British extraction based in Barcelona. By inclination he is a macro economist, but his obsession with trying to understand the economic impact of demographic changes has often taken him far from home, off and away from the more tranquil and placid pastures of the dismal science, into the bracken and thicket of demography, anthropology, biology, sociology and systems theory. All of which has lead him to ask himself whether Thomas Wolfe was not in fact right when he asserted that the fact of the matter is "you can never go home again".
He is currently working on a book with the provisional working title "Population, the Ultimate Non-renewable Resource".
Apart from his participation in A Fistful of Euros, Edward also writes regularly for the demography blog Demography Matters. He also contributes to the Indian Economy blog . His personal weblog is Bonobo Land . Edward's website can be found at EdwardHugh.net.